Projection: Opposition wins most votes in Portugal

By Barry Hatton

Associated Press

Published: Sunday, June 5 2011 1:25 p.m. MDT

Pedro Passos Coelho, center, leader of the center-right Social Democratic Party, PSD, drinks an espresso with local residents at a cafe after voting in Portugal's general elections Sunday, June 5 2011, in Amadora, outside Lisbon. Opinion polls indicated Friday that the main opposition PSD will unseat the ruling Socialist Party in the election held against the backdrop of a euro 78 billion bailout.

Paulo Duarte, Associated Press

LISBON, Portugal — Portugal's Social Democrats unseated the Socialist government in a convincing election victory Sunday, according to projections, putting them in charge of a grinding austerity program amid a €78 billion ($114 billion) bailout that is expected to pitch the country into deep recession.

The center-right Social Democratic Party collected between 38 and 42.5 percent in the ballot compared with about 24-29 percent for the center-left Socialists, according to an exit poll by broadcaster TVIndependente. State broadcaster RTP's projections were broadly similar.

The Social Democrats had asked for an emphatic endorsement at the ballot box that would give them a strong mandate to enact unpopular fiscal measures and introduce longer-term economic reforms such as making it easier to hire and fire workers — a proposal parties on the left have balked at.

However, the result would leave the Social Democrats just shy of an absolute majority in the 230-seat Parliament where it will need approval for its policies.

Social Democrat leader Pedro Passos Coelho, probably the country's next prime minister, may invite the smaller, conservative Popular Party, to form a coalition government and bolster his party's parliamentary support. The Popular Party was projected to come third with 11-14 percent.

Turnout was around 60 percent, the projections said, in line with recent elections.

As in Ireland, where the governing party lost heavily in an election after taking a bailout, the Socialists who have been in power for the past six years appeared to pay heavily for the country's economic downturn.

The winner faces the formidable task of trying to nurse the debt-wracked country of 10.6 million back to financial health after a decade of negligible growth when it borrowed more than it could afford.

The next government inherits a record jobless rate of 12.6 percent and an anticipated economic contraction of 4 percent over the next two years in what is already one of Europe's poorest countries. Necessary welfare and pay cuts, tax hikes and promises of strikes from trade unions will also present tough challenges.

Given its continuing difficulties, Portugal still hasn't escaped the possibility of a financial catastrophe.

The new government must move quickly to enact more than 200 measures over the next two years, cutting expenditure and reforming social and economic sectors in accordance with the bailout terms. At the same time, it has to find a way to engineer the fresh growth that will allow it to free itself from debt in the long term.

Any sign that Portugal is not abiding by the terms of its bailout agreement with its eurozone partners and the International Monetary Fund will likely add fuel to Europe's debt crisis. There are already signs of bailout fatigue among the continent's wealthier nations, with Greece's financial future remaining uncertain as its original bailout appears too small.

With reforms billed as vast changes in Portuguese expectations and way of life, keeping the political peace in Portugal won't be easy.

The election — the country's second in two years — came after months of political squabbles over how best to reduce the debt burden. Opposition parties refused to accept the Socialist government's austerity plans, prompting the administration to resign and worsening Portugal's financial plight.

All three main parties gave their blessing to the bailout deal, though they differ over how to meet the debt targets and other issues such as the possible privatization of public services.

The Portuguese Communist Party and its like-minded rival the Left Bloc, which are each projected to get less than 10 percent of the vote, have fought against the bailout demands but could potentially support the Socialists in Parliament against a right-of-center coalition.

The left-of-center parties are especially disinclined to accept reforms which scrap long-standing welfare entitlements and make it easier to hire and fire workers — a measure the Social Democrats views as crucial.

Luisa Diogo, a 56-year-old high-school teacher, said the country's near future is already mapped out and she felt "sad and powerless" while facing years of hardship.

"Europe is changing. All those postwar policies designed to give dignity to the old, the infirm and the unemployed are being taken away," she said after voting in Lisbon.

The Bank of Portugal has predicted that economic hardship will be "particularly severe" in coming years, with an "unprecedented" drop in family income.

Over the past decade Portugal recorded average annual growth below 1 percent. It took advantage of cheap loans as a member of the 17-nation eurozone to build up debt, which financed its western European lifestyle of welfare entitlements and job security.

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